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Liz Weston

Q&A: Escaping California’s tax auditors is tough even after leaving the state

July 8, 2019 By Liz Weston

Dear Liz: My husband and I will be trying out several different areas after the sale of our Los Angeles area house, which will be some time this summer. What happens if we end up renting in three different states? I’m under the impression that we need to be able to prove that we resided in a particular state for six months and one day in order to say we are residents of that state. Even though my husband has been retired for many years, he still does a small amount of business through a company based in Southern California. Will we be forced to pay California tax even though we are residing elsewhere?

Answer: California, like other higher-tax states, has residency auditors whose specialty is asserting that affluent people who have left the state are still legal residents and thus are subject to its taxes. The audits can be stunningly thorough, looking at everything from the doctors you visit to where your artwork and other valuable possessions are stored.

If audited, you would need to prove that you have a fixed, permanent residence elsewhere and that it’s truly your home. And yes, it’s up to the taxpayer to prove this — there’s no presumption of innocence in tax audits, says tax attorney Mark Klein, chairman of Hodgson Russ LLP in New York City. (New York is another state with notoriously hard-nosed residency auditors.)

Just leaving the state for six months and registering to vote elsewhere typically won’t be enough. You likely would need to spend substantially more time in your new “home” state than in California. Klein, who recently taught a session on establishing residency at the AICPA’s annual ENGAGE conference, tells his clients to spend at least two months in the new place for every month they spend in the old one.

Also, you should “stick the landing,” in Klein’s words. Let’s say you try to establish residency in Nevada but then move to Florida by the time California’s auditors find you. They may well decide that your Nevada stay was temporary and that you were still subject to California taxes during the time you lived in the Silver State.

Escaping the long arm of California’s tax auditors could be tough while you’re still figuring out where to live next. You’d be smart to consult a CPA experienced with California residency audits for advice on how to cut ties to the state cleanly.

Filed Under: Q&A, Taxes Tagged With: California, state taxes, Taxes

Q&A: Limiting your rate shopping window

July 8, 2019 By Liz Weston

Dear Liz: We’re planning to refinance our mortgage and are concerned about generating multiple credit inquiries which would lower our excellent credit scores. Is there some kind of licensed, bonded ethical middle-agent who could get just one official credit report from each of the three bureaus and then send it to all the lenders I designate? Our FICOs are so good that we want lenders to compete for our refi business but don’t want the process itself to lower FICOs just for inquiries only.

Answer: The FICO formula has you covered. With the FICO scores most lenders use, multiple mortgage inquiries made within a 45-day window are aggregated together and counted as one. Furthermore, any inquiries made within the previous 30 days are ignored entirely. That allows you to rate shop for mortgages without dramatically affecting your scores.

The FICO formula extends this “de-duplication” process to two other types of borrowing: auto loans and student loans. Only similar types of inquiries are grouped together, however. If you shopped for both mortgages and auto loans, then two inquiries eventually would be factored into your credit scores, rather than just one.

Credit cards, personal loans and other types of borrowing don’t get the same treatment. If you apply for two credit cards while shopping for a mortgage, you would have three inquiries — two that are immediately factored into your scores and a third that would be counted after 30 days had passed.

Also, some lenders use older versions of the FICO formula that have a shorter rate-shopping window — 14 days instead of 45. If you want to be absolutely sure your mortgage shopping has a minimal impact on your scores, you can limit your shopping to that two-week period.

Filed Under: Credit Scoring, Q&A, Real Estate Tagged With: credit inquiries, mortgage, q&a, real estate, refinancing

Tuesday’s need-to-know money news

July 2, 2019 By Liz Weston

Today’s top story: Dodge dealership dread with online used car sellers. Also in the news: What first-time home buyers should know about fixer-uppers, how to save for the future when it’s uncertain, and how long it takes for paid debt to be reported to credit bureaus.

Dodge Dealership Dread With Online Used Car Sellers
Car shop from your couch.

What First-Time Home Buyers Should Know About Fixer-Uppers
Don’t get trapped in a money pit.

How to save for the future when it’s uncertain
An emergency fund is crucial.

Here’s How Long It Takes for Paid Debt to Be Reported to Credit Bureaus
Be patient.

Filed Under: Liz's Blog Tagged With: Credit Bureaus, debt, emergency funds, first-time home buyers, fixer-uppers, paid debt, Savings, used car shopping

How to nag new coworkers to save for retirement

July 2, 2019 By Liz Weston

he most important thing you can say to a new hire may well be: “Have you signed up for the 401(k) yet?”

An astounding 3 out of 10 workers don’t know whether their employers offer retirement plans, according to a survey by research firm Morning Consult for the Certified Financial Planner Board of Standards.

“That was, quite frankly, shocking,” says Kevin Keller, the board’s CEO. “But it clearly shows that people just don’t know what their options are.”

In my latest for the Associated Press, tips on convincing your younger co-workers to save for retirement.

Filed Under: Liz's Blog Tagged With: Retirement, retirement savings

Monday’s need-to-know money news

July 1, 2019 By Liz Weston

Today’s top story: 3 sites to help aging parents organize vital details. Also in the news: How much you’ll really pay for that student loan, financial records to keep in your “go bag”, and online games that encourage savings.

3 Sites to Help Aging Parents Organize Vital Details
Keeping important documents straight and accessible.

How Much You’ll Really Pay for That Student Loan
The totals can be shocking.

Keep These Financial Records in Your ‘Go Bag’
Documents to have in case of an emergency.

People are paying to play online games that encourage them to save
Contradictory? Or incentivizing?

Filed Under: Liz's Blog Tagged With: financial documents, online games, Savings, seniors and money, Student Loans

Q&A:Ready to retire? If you’ve saved 8 times your salary by age 60, maybe

July 1, 2019 By Liz Weston

Dear Liz: I keep reading about how much money one should have saved at various ages to comfortably retire. These are usually a multiple of your annual salary. Do these projected amounts factor in whether you are single or married with a single income? Or if you still have a mortgage? What about having to take a lower-paying job in future years because of downsizing? Is Social Security included? It’s tough to know what these suggested amounts assume to know, given that each person’s situation is different.

Answer: Exactly. So it’s smart to do a little digging.

Fidelity Investments, for example, has come up with some salary-based rules that suggest you have an amount equal to:

One time your salary by age 30

Three times your salary by age 40

Six times your salary by age 50

Eight times your salary by age 60 and

10 times your salary by age 67.

Fidelity assumes you’ll want your standard of living to continue basically unchanged in retirement. Its rules are based on a number of factors, including a 1.5% real wage growth throughout one’s working life, a 15% savings rate starting at age 25, claiming retirement and Social Security at age 67 and a portfolio invested at least 50% in stocks that replaces 45% of your individual income in retirement. Fidelity used multiple market simulations “to support a 90% confidence level of success.”

Few people’s lives will follow an idealized trajectory. For example, many people who enter their 50s with full-time jobs will lose them, and only 1 in 10 will find a new one that earns as much, according to a study by ProPublica and the Urban Institute. You can’t know for sure how long you’ll live, what investment returns you’ll get, whether you’ll need long-term care (although that’s likely) or even what your fixed expenses will be, at least until you’re relatively close to retirement.

People also will have vastly different needs and interests in retirement. A thrifty homebody will probably need less than a globe-trotting spender. Working at least part time in retirement also can shift the math in your favor because you’ll need to draw less from your retirement funds.

What we do know is that people who save a lot tend to have more options as they age. And once you reach your 50s, you’d be smart to consult a fee-only financial planner who can give you a second opinion on your retirement plans to ensure you’re on track.

Filed Under: Retirement Tagged With: Retirement, retirement savings

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